European utilities

Battle of the giants

Italy's Enel stamps on E.ON's long-running bid for Spain's Endesa

ENEL'S raid took everyone by surprise. Rafael Miranda, the boss of Endesa, Spain's biggest electricity company, was in Frankfurt on February 27th for a breakfast with German journalists when Enel, Italy's state-controlled electricity giant, swooped to buy almost 10% of his firm. Mr Miranda rushed back to Madrid to try to work out where this leaves the takeover bid for his company by E.ON, a German utility. He supports the German offer—after some grumbling about the price.

E.ON says it will pursue its bid for Endesa in spite of the Italians' unexpected sally. But the chances of success for the biggest (and longest-running) takeover in utilities history suddenly look very small. The Germans are now faced not only with staunch opposition from the Spanish government and resistance by a powerful Spanish shareholder, but also with a cash-rich and expansion-hungry Italian rival.

The Spanish government opposed the German bid from the outset because, like most European governments, it is keen to create a home-grown energy champion in anticipation of full deregulation of the energy market in July. It even backed a lower offer for Endesa by Gas Natural, another Spanish energy firm, despite its rejection by the antitrust authorities in Madrid. In November 2006 the government found an ally in Acciona, a Spanish construction firm, which built a stake of more than 21% in Endesa and says it wants full control. For its part, Enel is planning to increase its stake in Endesa to 24.9%, above which it has to launch a full bid for the company.

E.ON's bid must clear two hurdles to succeed. The first is a shareholder vote at the general meeting on March 20th to remove provisions in Endesa's bylaws capping any investor's vote at 10%. Acciona has already signalled that it will abstain from the vote. Enel will probably do the same, as will Sepi, a state-controlled holding company, which holds another 3% of Endesa shares. This means it will be practically impossible to get the required 50% of Endesa shareholders to vote in favour of a change in the firm's statutes. The second hurdle is the acquisition of at least 50.1% of Endesa's shares. If Enel gets permission from the Spanish energy regulator to raise its stake in Endesa to 24.9%, more than half of Endesa will belong to Spanish and Italian firms unwilling to sell to the Germans.

It has done no good to Spain's reputation among international investors, but the Spanish government is thus likely to keep Endesa Spanish, or at least southern European. Its bias became blatantly obvious this week. A Spanish solution was more likely than a German victory, said Joan Clos, Spain's industry minister, in a radio interview on February 26th. He said this would involve “some sort of pact”.

Last week José Luis Rodríguez Zapatero, the Spanish prime minister, and Romano Prodi, his wobbly Italian counterpart, met on the island of Ibiza. Both sides deny discussing energy, let alone some form of deal. But in return for Enel's move into the Spanish energy sector, Spain's Abertis may suddenly find that it is able to merge with Italy's Autostrade; or Telefónica, the Spanish telecoms giant, might miraculously find it easier to buy into Telecom Italia—two deals the Italian government has hitherto been blocking.